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Long swings and chaos in the exchange rate in a DSGE model with a Taylor rule

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  • Bask, Mikael

    ()
    (Bank of Finland Research)

Abstract

A DSGE model with a Taylor rule is augmented with an evolutionary switching between technical and fundamental analyses in currency trade, where the fractions of these trading tools are determined within the model. Then, a shock hits the economy. As a result, chaotic dynamics and long swings may occur in the exchange rate, which are appealing features of the model given existing empirical evidence on chaos and long swings in exchange rate fluctuations.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0719netti.pdf
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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 19/2007.

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Length: 28 pages
Date of creation: 12 Nov 2007
Date of revision:
Handle: RePEc:hhs:bofrdp:2007_019

Contact details of provider:
Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Keywords: chaotic dynamics; foreign exchange; fundamental analysis; monetary policy; technical analysis;

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References

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Citations

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Cited by:
  1. Bask, Mikael, 2007. "Instrument rules in monetary policy under heterogeneity in currency trade," Research Discussion Papers 22/2007, Bank of Finland.
  2. Chen, Shu-Heng & Chang, Chia-Ling & Tseng, Yi-Heng, 2014. "Social networks, social interaction and macroeconomic dynamics: How much could Ernst Ising help DSGE?," Research in International Business and Finance, Elsevier, vol. 30(C), pages 312-335.
  3. Nikolsko-Rzhevskyy, Alex & Prodan, Ruxandra, 2012. "Markov switching and exchange rate predictability," International Journal of Forecasting, Elsevier, vol. 28(2), pages 353-365.
  4. Chang, Chia-ling & Chen, Shu-heng, 2011. "Interactions in DSGE models: The Boltzmann-Gibbs machine and social networks approach," Economics Discussion Papers 2011-25, Kiel Institute for the World Economy.
  5. Chen, Shu-heng & Chang, Chia-ling, 2012. "Interactions in the New Keynesian DSGE models: The Boltzmann-Gibbs machine and social networks approach," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(26), pages 1-32.

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